SPOTLIGHT
This MMU Spotlight discusses the significance of ‘direct deposits’ to
mobile money operators and how they can be addressed.
Target audience: Mobile money managers and those involved in mobile money agent network management in
wallet-based services. The direct deposit challenge does not apply to pure OTC (over-the-counter) operators.
What is a direct deposit?
Direct deposits are the circumvention of the intended flow of a P2P transfer. A direct deposit occurs
when the customer initiating a P2P transfer hands the agent cash, but provides them with the
mobile number of the recipient rather than their own. The agent deposits the funds directly into the
recipient’s account, allowing the sender to avoid the P2P transfer fee. In doing so, the agent has
essentially turned a mobile wallet service into an over-the-counter (OTC) transfer service.
Why do direct deposits happen?
The perpetrator of the direct deposit can differ: A customer might trick an agent into thinking the recipient phone number is his or her own to avoid the P2P transfer fee. On the other
hand, the agent might be enabling this abuse by offering direct deposits to customers
(possibly for an unofficial fee). Alternatively, direct depositing could be a failing of customer
or agent education, with either or both party perceives this method to be the appropriate
way to transfer money. Perhaps the customer or the staff at the agent outlet might not
understand the proper transaction flow. This might especially be the case if customers are
illiterate, uncomfortable with the mobile money interface, or have forgotten their PIN.
The harm of direct deposits
Direct deposits are problematic for a few reasons:
Lost direct revenue: Although MMU does not have an industry-wide figure, benchmarks from a few
deployments suggest direct deposits might comprise a significant part of P2P transfers. One
service provider estimates that 40% of their P2P transfers occur through direct deposits rather than
through the proper means. In a typical charge structure (such as the one shown in the table
below), this might represent over 20% of net1 P2P revenue lost to direct deposits.
Stunted registration rates: When a direct deposit option is available, users may choose not to
register for mobile money. In addition, agents may be tempted to skip the lengthy customer regis
tration process and push customers toward direct deposits instead.
No “stickiness” benefit: Direct depositors are not compelled to have an operator’s SIM in their
phone to send money so operators miss out on the GSM uplift and churn reduction associated with
mobile money.
Missed opportunity for customer education and promoting new use cases: Customers learn by
doing. Understanding how to operate the mobile money interface is important for introducing new
products and use cases. Direct deposits may be poisoning the potential for future product innova
tion.
Loss of customer-level information: The operator might have problems of compliance with
AML/CFT regulation and KYC requirements, and won’t have the ability to understand or analyse
their customer activity.
Agent abuse: Agents can use direct deposits as a platform to charge unofficial fees.
“We may be losing up to 40% of our P2P transfer fees to direct deposits.”
– Mobile money operator
Figure: Sample revenue loss from direct deposit from Safaricom M-PESA’s charge structure
Transaction band (KSH)
A. Net revenue from deposit
and withdrawal – fees less
commissions
B. P2P transfer
fee
100 – 2,500
2,501 – 5,000
5,001 – 10,000
10,001 – 20,000
20,001 – 35,000
0
10
25
65
60
30
30
30
30
30
C. % of total net
revenue lost in event of
direct deposits
[A / (A+B)]
100%
75%
55%
32%
33%
2
Preventing direct deposits
The below diagram outlines a three step process through which mobile money operators have
reduced the number of direct deposits in their deployments.
1. In many charge structures, MNOs make money from both withdrawal margins (fees minus commissions) and the P2P fee itself.
This benchmark is based on the proportion of net revenue (less agent commission) that an MNO might earn from the P2P transfer
fee in a typical charge structure.
2. M-PESA charging structure in 2009 from “http://www.gsma.com/mobilefordevelopment/wpcontent/uploads/2012/03/keystompesassuccess4jan69.pdf.” Note: Charging structure has since changed.
Setting direct deposit policy:
Service providers need to clearly establish with their agent network that direct deposits will not be tolerated and
make clear the disciplinary action that will be taken in the event of transgression. For service providers that
have historically turned a blind eye to direct deposits, this part of the agent regulations may need to be reemphasized. Agents should not be able to credibly claim ignorance on the policy.
Identifying transgression:
Identifying direct deposits can be tedious, but is an important part of addressing the problem. Generally, MNOs
have employed a combination of 1) back-office analysis on transaction data to identify possible offenders and 2)
mystery shopping to catch offenders in the act.
Identification methods from transaction data usually start with customers and then work backward to the agents.
A leading indicator for a customer that is receiving direct deposits is a large number of deposits and withdrawals
with no corresponding P2P transfer received. Other corroborating evidence that help build the case:
The withdrawal happened soon after the deposit (usually within 24 hours)
The withdrawal and deposit happened at different agents in distant locations
Table: Identifying direct deposits through a customer transaction log
Transaction type
Receive P2P
Buy airtime
Withdraw
Deposit
Withdraw
Amount
100
10
90
80
80
Date
March 1
March 1
March 2
May 20
May 20
 Suspected
direct deposit
It should be noted that some of these customers may be using mobile money for storage of cash (which
would be difficult to distinguish from a direct deposit in the transactions logs), so this type of analysis is not
a “smoking gun.” But it can allow operators to build a list of suspects. Once specific customer transactions
have been identified, the agents who processed them can become a target for mystery shopping
Mystery shopping allows operators to know for certain whether an agent offers direct deposits to their
customers. The operator simply needs to send a mystery shopper to any suspect agents to request for a
direct deposit (“can you please deposit these funds onto this phone number?”).
Operators have also experimented with various forms of technology to pre-empt direct deposits. This
might include requiring the customer phone to confirm a deposit at an agent or requiring that the customer
phone be on the same base station as the agent. Both of these approaches have faced usability challenges, and were not recommended from the operators that tried them.
Disciplining offenders:
Service operators have relied on various forms of disciplinary action, which is summarized in the table
below. Generally a warning is the least severe response, with commission claw-back or suspension of the
agent account seen as more drastic measures.
Table: Approaches to direct deposit identification and disciplinary action
MNO
Monitoring approach
MNO A
Daily transaction log
monitoring
Mystery shopping
Periodic transaction log
monitoring and mystery
shopping
Mystery shopping
MNO B
MNO C
MNO D
Agent penalty for first
transgression
Warning, possible claw
back of commission
Warning
Claw back deposit
commission
Agent penalty for subsequent
transgressions
Currently nothing, but stiffer
penalties under development
Warning has been sufficient so far
Close the agent
Temporary suspension
of agent account
Temporary suspension has been
sufficient so far